Income Rider
An optional feature, often carrying an annual fee, that provides guaranteed future income separate from the account value.
An income rider is an optional add-on to a deferred annuity that guarantees a defined stream of withdrawals for life, typically for an explicit annual charge. It works from a benefit base that is separate from the account value and is used only to calculate the guaranteed withdrawal amount.
- —The rider charge is usually assessed annually and often against the benefit base rather than the account value.
- —The roll-up rate credited to the benefit base is not investment return and is not withdrawable as a lump sum.
- —The guaranteed withdrawal percentage is generally locked by the age income begins.
- —A rider that is paid for but never activated is a cost with no delivered benefit - a frequent in-force review finding.
Income riders are added to deferred contracts and charged annually, sometimes against the account value and sometimes against the benefit base. Which base the charge uses materially changes the long-run cost.
Riders issued in earlier rate environments sometimes carry terms no longer offered. Those terms do not survive a move to a new contract, which is why an in-force rider is often the reason a review concludes that a contract should be kept.
Roll-up rates and what they really are
Marketing material sometimes presents a benefit base roll-up as though it were a guaranteed return. It is not. A roll-up increases only the figure used to calculate future guaranteed withdrawals; it does not increase the surrender value, the death benefit in most contracts, or any amount reachable as cash.
Roll-ups also usually stop. Common terminations are at a stated number of years, at a stated attained age, or on the first withdrawal - whichever the contract names first.
| Account value | Benefit base | |
|---|---|---|
| What it is | Real money in the contract | Bookkeeping figure for the guarantee |
| Can be withdrawn as a lump sum | Yes, subject to charges | No |
| Paid to beneficiaries | Generally yes | Generally no, unless a rider says otherwise |
| Grows from | Index or fixed credits, less charges | Stated roll-up while the roll-up period runs |
Questions that settle whether a rider is doing its job
Four contract facts determine whether an income rider is earning its charge for a given owner.
- —What is the annual charge, and is it assessed on the account value or the benefit base?
- —When does the roll-up period end, and has it already ended?
- —What is the guaranteed withdrawal percentage at the owner's realistic income start age?
- —Is there an intention to actually turn income on, or is the guarantee being held indefinitely?
Frequently asked questions
- Can I cancel an income rider?
- Some contracts allow the rider to be dropped after a stated period, which stops the charge and the guarantee. Others make it irrevocable for the life of the contract. The rider specification page states which applies.
- Is the roll-up rate the same as my return?
- No. A roll-up applies only to the benefit base used to calculate guaranteed withdrawals. It is not credited to the account value and cannot be withdrawn as a lump sum.
- What is the difference between an income rider and annuitizing?
- Annuitizing generally converts the account value into a payment stream and ends owner access to the balance. An income rider provides lifetime withdrawals while the owner keeps the account value and any remaining balance passes to beneficiaries.
- Do income riders keep paying if the account value hits zero?
- That is the core guarantee of a lifetime withdrawal rider: if the account value reaches zero while the owner is living and no excess withdrawals have breached the terms, the carrier continues the guaranteed amount for life from its general account.